The second round of auction for Pfizer's $10-billion infant nutrition business will see a consortium comprising of French dairy major Groupe Danone (BN) SA and US paediatric nutrition giant Mead Johnson pitted against Nestle for the world's second-largest infant nutrition business.

The two-horse race became possible after Danone and Mead Johnson got Pfizer's approval to jointly bid in the second round of auction scheduled for 5 March, according to Reuters.

Along with the European giants Nestle and Dannone, Illinois-based Mead Johnson and Pittsburgh, Pennsylvania-based ketchup king H J Heinz Company have also entered the second round of auction for Pfizer's infant nutrition.

But Heinz signalled its retreat, when its CEO, William Johnson, this week said at the Consumer Analyst Group conference in New York that it would invest more in condiments and sauces rather than ''bet the ranch'' on a big deal.

Johnson said that investing in a huge transaction such as this, would not create enough value for the company or shareholders and rather invest in other areas that would create synergies or growth.

Pfizer acquired the infant-nutrition division in its $68-billion takeover of Wyeth in 2009, and since early July 2011, has been exploring alternative options, including, a full or partial spin-off or sale of its Nutrition and Animal Health business, in order to focus on its core biopharmaceutical products.

Pfizer had hired Morgan Stanley and Centerview Partners to evaluate the businesses and complete any transactions in 12 to 24 months.

Pfizer Nutrition is the second-largest in the world after Nestle. It is a leader in infant and paediatric nutrition with core brands that include SMA Gold, Promil Gold, Progess Gold, and S-26 Promise Gold. The business, which also produces vitamins for pregnant women, generated revenues of $1.9 billion in 2010 and $2.1 billion in 2011.

Pfizer Nutrition business is growing at 8 per cent a year with around 60 per cent of sales coming from Asia, a third of it from China, while 30 and 10 per cent comes from Europe and Latin America respectively.

It is the world's fifth-largest in the infant milk formula market behind Nestle, Mead Johnson, Danone and Abbott Laboratories.

Pfizer Nutrition operates in six continents and its products are available in more than 60 countries. Its main markets are Asia, the Middle East, Europe and Latin America, with China, Philippines, the UK, Mexico and Australia being its key markets.

It has manufacturing facilities in China, Ireland, Mexico, the Philippines, and Singapore.

An acquisition by Nestle, would catapult the Swiss foods giant to third position in the infant nutrition business in China, where it currently has a low presence.

Mead Johnson, with its flagship brand Enfamil, is the market leader in the $6 billion Chinese market followed by Danone and Chinese milk producer Mengniu Dairy Co.

Among the overseas companies, Mead Johnson holds a 16 per cent share in the Chinese market, Danone holds 14 per cent, Pfizer 8 per cent and Nestle just 4 per cent
The Chinese market has grown at more than 20 per cent a year over the last five years and is set to double to $12 billion by 2016.

Danone, the world's largest yogurt maker, which sells Dumex as well as Milupa and Bledina brands, holds a14-per cent market share in China, but it will have to raise funds for this large acquisition since it has only $1.51 billion in cash at hand, while Mead Johnson has $940 million and Nestle $10 billion.

But Danone and Nestle would have to shed at least 30 per cent of Pfizer Nutrition business in order to meet regulatory concerns, say analysts.